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LOS ANGELES — Southern California Edison said Friday it hopes to pay all its creditors by February after a federal judge approved a settlement agreement designed to keep the state’s second-largest utility out of bankruptcy. 

Consumer groups were quick to criticize the agreement between Edison and the California Public Utilities Commission, which forces customers to continue paying higher rates imposed last May for at least two more years. 

The deal also would require Edison shareholders to forego $1.2 billion worth of dividends over three years. 

At a court hearing, U.S. District Judge Ronald S.W. Lew said the agreement was “fair, adequate and reasonable to the parties, the shareholders and to the public and is not a bailout by any means.” 

Lew rejected arguments by a consumer’s group and Los Angeles County, which had asked for more time to comment on the proposed settlement. Edison and the PUC announced the agreement Tuesday, just one week before the Legislature was set to convene a third special session to consider an Edison rescue plan. 

Michael Strumwasser, an attorney for The Utilities Reform Network, a San Francisco-based consumer advocacy group, said the organization would appeal what he called “this incredible incursion of federal jurisdiction on state regulation.” 

The agreement, which was secretly negotiated between lawyers for the utility and the PUC, settles a lawsuit filed by Edison last fall. It’s designed to let Edison pay off an estimated $3.3 billion of its more than $6 billion debt. Edison will use its available cash and the canceled dividend payments for the next three years to satisfy the remainder of its debt. 

Edison said Friday it believes it will accumulate enough cash and gain financing by the middle of the first fiscal quarter of 2002 to pay its debt to banks, bondholders and power generators. 

“We’re looking for a big bang in terms of paying everybody in the first quarter,” Ted Craver, Edison’s chief financial officer, said in the 71st conference call with creditors since the state began paying for power in January. “I don’t think it will take that long to work through the remaining issues.” 

Some of the remaining issues include how and when power generators will be paid. 

Smaller power generators said Friday Edison has pledged to honor an earlier agreement to pay them 5.37 cents per kilowatt hour for the next five years. 

“Edison has every intention of honoring the deal and the other fundamental aspects of the agreement,” said Jan Smutny-Jones, executive director of the Independent Energy Producers. 

Smutny-Jones said he was called Thursday by Edison chief executive officer Stephen Frank and other company officials who pledged to work with generators to develop a repayment plan. 

Larger power generators said they are still waiting to hear details from Edison. 

“We’re disappointed in this rush to judgment when this complex secret agreement was made public only a few days ago,” said Patrick Dorinson, spokesman for Mirant Corp., one of two major generators who objected to the settlement because it didn’t specify how and when they would be paid. Edison owes Mirant about $110 million, Dorinson said. 

“Edison’s actions will have to speak louder than their words,” Dorinson said. 

Michael Florio of TURN vowed to fight the court ruling. 

“This is not just a bad decision by the PUC, this is gross incompetence and dereliction of duty,” he said. 

The deal was negotiated over 10 days to keep the Rosemead-based utility from following Pacific Gas and Electric, the state’s largest utility, into bankruptcy. 

PG&E and Edison blame their financial woes on California’s 1996 deregulation law that prevented them from passing on skyrocketing wholesale power costs to ratepayers. The state stepped in, buying billions of dollars in power for the credit-starved utilities. 

Earlier this year, the PUC approved a $5 billion electricity rate hike, the biggest in California history. Regulators then boosted rates by as much as 80 percent for residential customers who use the most power. 

Gary Cohen, a lawyer for the PUC, said the ruling was fair to ratepayers and should allow Edison to pay its debt by the end of 2003. 

The ruling also allows the commission to retain authority over Edison in contrast to a reorganization proposed by PG&E to cope with its financial troubles, he said. 

“What we’re doing is trying to get SoCal Edison financially healthy so it can resume purchasing power for its customers and we can get the state out of the power-buying business,” Cohen said.